Gov’t plans to cut deficit below 3% next year, deputy PM tells wire

Thursday, June 24, 2010, 10:36

Hungary's Fidesz-led government hopes to cut next year's budget deficit below 3% of GDP as agreed with lenders earlier and will seek backing from the International Monetary Fund (IMF) and European Union (EU) for reforms to raise growth potential, the Deputy Prime Minister Tibor Navracsics told Reuters.

Navracsics reiterated that the government is firmly committed to this year's deficit target of 3.8% of GDP and would like to negotiate an extension of a €20 billion financing deal with international lenders.

“We hope we can meet (the) undertaking by the (previous) Bajnai government, which would bring the budget deficit below 3%,” the deputy prime minister said, adding however that meeting even this year's target would be “very-very hard” within the new global environment.

When asked if setting a target date for euro entry would come up at talks with international lenders later this year, Navracsics noted that several euro zone aspirants have become hesitant whether this was the best moment to join.

“Nevertheless, I think, no European Union member state outside the euro zone can write up an economic policy plan which does not have at least an approximate date regarding euro adoption,” the deputy prime minister said.

When asked when Hungary could join the euro, Navracsics said earlier expectations for entry in 2014-15 were "not out of the question" provided that the country can stick to the economic commitments of the previous government.

Hungary has no euro target date at the moment.

The Hungarian government would seek the backing of lenders for a package of structural changes aimed at boosting the country's economic growth potential and a plan to cut debt, by far the highest in central Europe at 80% of GDP.

“One of our fundamental goals is to cut this exceedingly high state debt,” Navracsics said, without elaborating on details of the government's economic reform plans.

The next review of Hungary's IMF/EU deal secured in October 2008 is due in July and a chief aide to Prime Minister Viktor Orbán said last week that talks on extending the agreement may begin as early as next month.

Navracsics also said the government and the National Bank of Hungary (MNB) should discuss their views on monetary policy and MNB governor András Simor should provide a full explanation of his private investments held since taking over at the bank in 2007.

Simor, whose mandate expires in 2013, has come under repeated attacks from top ruling Fidesz party officials in the past two months over his former investments in a Cyprus-based company and over what Fidesz has said were policy errors by the bank.

“I think that if there are conflicts...we need to sit down, talk and negotiate,” Navracsics said. “Of primary importance to me would be that the government and the central bank discuss their monetary policy goals and the path leading to those goals,” he remarked.

Navracsics noted that changing the central bank law was not on the agenda, though Simor needed to clarify his private investments.

“He became central-bank governor and did not disclose part of his holdings in companies to the public,” the deputy prime minister stated, adding that “This obviously has a bearing on differences on professional policy but in this case also, I think there is no other way than to talk and clarify this situation somehow.”

Simor has vowed to fulfill his mandate and defend the NBH's independence.

Simor said in a statement in May that he did not evade Hungarian tax payment with the Cyprus-based company and he had sold his interest in the firm and had invested the proceedings in investment funds in Hungary. (MTI - Econews)

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